The largest debt-financed commitment technology deal to date

On October 13, we noted that Dell and Silver Lake Partners were considering utilizing the debt market to raise the required investment to fund the EMC (EMC) acquisition, which included VMware (VMW). Apart from the biggest buyout the technology space has seen to date, this is the largest North American M&A (mergers and acquisitions) deal in any sector in 2015.

Another point that makes Dell–EMC a notable deal is that it represents the largest financing commitment for a technology deal to date, with up to $50 billion in debt. This is more than twice as large as any previous transaction in history. This deal is expected to be positive for Dell bondholders as EMC has decent cash reserves, reasonable debt, and robust earnings.
Dell–EMC Marks the Largest Financing Commitment Deal in Tech Space

Investment banking’s big earnings from the Dell–EMC deal

Apart from being the biggest technology deal to date, the EMC–Dell deal is the largest go-private in the history of buyouts. Dell made big news in 2013 when the company announced that it would go private due to a contraction in the PC market, increasing competition from Taiwan (EWT) and China, the rise of cloud computing, and pressure on the company to increase its quarterly revenues and profits.

However, the investment banking industry has a lot to cheer about from the Dell–EMC deal as it expected to earn $710 million–$785 million in fees. The investment banks—particularly Morgan Stanley (MS) and JPMorgan (JPM), which are the lead financial advisers to EMC and Dell, respectively—could make up to $210 million in advisory fees, according to estimates by Freeman & Co., a consulting firm.

Freeman further shared that Dell would pay approximately 1%–1.5% of the money it borrows in loan arrangement fees. If it takes $40 billion–$50 billion in leveraged loans, the arrangement fees could be in the $500 million–$575 million range. This means that total fees, including the advisory fees and the financing fees, could reach $710 million–$785 million. The Dell–EMC deal is expected to close between May and October 2016.

You can consider investing in the PowerShares QQQ Trust ETF (QQQ) to gain diversified exposure to the technology sector. QQQ invests about 54% of its holdings in the technology sector.

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